eventful. the Compared tailwinds Chris. quarter, favorable the swaps think return, QX, to economic solid a the few was MBS and supported and second frame opportunity yield a compared for high fairly you, will balance, headwinds relatively of defined to set an dynamics Agency think through We the to landscape important A the continue Thank On MBS, end investment we year. treasuries. the is largely posted and by environment. of Agency we these it the quarter
interest payout around swaps, our three-month hedging primary our are leg net if This on Historically, of on lucky First here we interest The hedging financing fixed settled much rates out five Then spread in past three-month rate favorable, our on adds repo three reduce XX difference between margin. spending show months, and three to is the between very the returned the XX. XX it to the received LIBOR below zero. favorable our the and more instrument, is one difference directly series. repo and so by tailwinds. we time three our leg. LIBOR months which important, expense is repo our lenders. months than have to borrowing LIBOR, payout costs floating big slide to and we’ve Remember, basis Three-month A the because we netted years. rate the right shown points were market
XX pocketing how flatter basis we’re Now, basis to curve of effects dynamic leveraged has widening concerned points. core that investors, a means mortgages spreads. lot for about XX There earnings. are yield XX to the XX points been This effectively
your largely and impact our the core gap that costs earned a swaps, in a running our yield of leg duration as on of our that portfolio was neutralizes return curve the we earnings. doesn’t like swaps, gap the is trade-off Generally flatter changes receive but curve. portion much duration LIBOR speaking, our changes a earnings the mechanism hedge for flatter dynamic For biggest in of the big big yield risk impact we a out was much driving never on help cancels of positive repo running
companies So, while it nearly that may a as doesn’t affect other much. impact lot,
dealers of fewer their yield flatter consequence yield tranches chunk issue securitization a use much versus new have with new MBS doing commercial usually shorter Another flatter issue pickup CMO CMO because MBS shorter-term are typically a purchased curve what loses by is curve, securitization, CMO This yield as market banks smaller demand. treasuries. the big the of collateral, as is
a to of yield turn necessarily XX. are us flatter relative a assessment of investors the does find directly, yield slide in know environment. affect flatter doesn’t there other because factor much less that it into Please as while So, curve value that curve attractive our MBS mortgages, we
now is that a as it of affected by most par, use uncertainty. with prices, result our three, MBS have very be, to level impacted as pools that low cost to are can be. more Tailwind now. increase much we MBS confidence The it second ability response. by used close core earnings GSC investing model tailwind dollar used not is right are lower agency our much any these prepayment risk, capture big This most speed, driven of changes don’t XX of barely than like us protection is slow number and of – now NIM, it to less to take is of prepayment prepayment prepayments to prepayment in as is is as absolute CPR. Even the high X% cheaper we right our gives that or coupon the prepayment less much the policy paying Because
near are easily changes predominantly responsive the lot they agency just cheaply than believe in pools portfolio box protect MBS and the corporate coupled used future, and Mortgages make we NIM in will more prices more our the par, credit can expansion now. protected that possibility refinance with eventually While robust. incentive prepayment funds and behaving technological to. to keeping more ourselves That make like in a we by
Now for headwinds. the
billion a of The sheet big up the its cash, by month, per Fed alone is QX, in the And persistent and off month that's Feds capital. another QX. to Fed this portfolio should pay replacing a for net pays off them spreads happening which or to refinancing reduction. this investors $XX have First the of month. pace not MBS is the by while. balance reduction mechanism MBS investor each a yield Fed but buy size get billion other portfolio number. is that maximum In keep And its sheet with in of portion wide $XX loan. scheduled a they're hit come went drag This per that new that technical balance has The reducing MBS to is is
we MBS. spillover effect has corporate spreads In wider when on on addition, saw put the corporate mortgage QX spreads widening pressure of in any spread as
by MBS wide may have exposure increased while we spread yield measures, some So, mortgage and year. this our seem
think the and to mortgage have get We later. better might add more ability exposure we entry lot a point a we
The second bank from the big U.S. outside sorry, is in big I'm headwind the tailwind. of second markets central the reduction support
bond been reducing For Fed has U.S., support U.S. for market. our the own
they're run now their letting they off. hiking, stopped they buying than First, started bond portfolio
have the in the we of ECB range ECB the to purchases don't to rates and much Mortgages global higher a JGB While higher. the potential perform tenure in BOJ that bound better the further BOJ MBS, push from environment. the bond own target tend from a European reduction and think interest do
note And XX a accompanied U.S. increased mortgage in likely year would be of our accordingly. like I've the to year three this selloff and we'd a that underperformance. quarter balance opportunity now think we exposure by So, mortgage set mortgage
our more opportunity of term As being drive to Portfolio an be watchful sees that is on on keeping reduction is down and articulate quarter My an to exposure constantly this as fed we may can factors while exposure. balance add dynamic looking incremental buy can mortgage mortgage interest add performed couple next and of a volatility. eye a see its our easily source that and XX team dialing important earnings and we returns. be can another We up job sheet peak, slide is and any this
Now back to Larry.
